issue: Trade

Does America Have a China Policy?

Posted on by The Progressive Policy Institute

President Obama’s visit to China has underscored the dramatically unbalanced nature of the Sino-American relationship. No, not the oft-lamented imbalance in trade between the two countries, but a strategic imbalance. Put simply, China has a U.S. strategy, but it’s not clear that the U.S. has a China strategy.

The Chinese know what they want, and for the most part, they are getting it. Foreign policy mavens take note: this is what 21st-century realpolitik looks like.

China wants the United States to keep its markets open. “I stressed to President Obama that under the current circumstances, our two countries need to oppose all kinds of trade protectionism even more strongly,” Chinese President Hu Jintao said yesterday in a joint news conference in Beijing’s Great Hall of the People. Though he was too polite to say so, he had in mind U.S. tariffs on Chinese steel and tires.

While President Obama swore fealty to free trade, he also called for “balanced growth,” which is diplo-speak for U.S. efforts to get China to spur domestic consumption and rely less on exports. The president also declared that the world cannot count on overleveraged U.S. consumers to be a perpetual engine of global growth.

Change in Trade Relationship Unlikely

That’s right in concept. But the U.S. trade deficit with China — even in the midst of recession and financial crisis — is expected to be $200 billion this year, about the same as last year. And U.S. injunctions to pump up domestic demand are no more likely to work with China than they did two decades ago with another export juggernaut, Japan. Beijing not surprisingly seems intent on sticking with the economic strategy that has produced annual growth rates of 10 percent – even as the U.S. wallows in 10 percent unemployment.

Worried about the value of the huge hoard of dollar assets they are sitting on, the Chinese admonished U.S. officials to keep the dollar’s value from sliding further. President Obama, determined to accentuate the positive, praised China’s previous pledges to “move toward a more market-oriented exchange rate over time.” But pegging the renminbi to the dollar is integral to China’s quasi-mercantile strategy. We should expect no more than cosmetic adjustments that will have scant effect on exchange rates and, therefore, will not give a major boost to U.S. exports to China.

So all and all the president’s visit was satisfactory from China’s point of view. Beijing got assurances that the administration would not shut out Chinese imports, or let the dollar get much weaker. It had to endure only mild U.S. nudges on boosting domestic consumption and letting its currency appreciate.

The Limits of Cooperation

For his part, President Obama stressed the need for Beijing to work with the U.S. to get North Korea and Iran to forswear nuclear weapons, and to reduce greenhouse gas emissions. China pays lip service to nuclear non-proliferation, but it has steadfastly declined to use its economic leverage to bring serious pressure to bear on North Korea. It also has blocked stiffer U.N. sanctions against Iran, even while upping its trade with Tehran. And China is adamant that it won’t sign a global warming pact with binding targets next month in Copenhagen.

The president seems not to have said much about democracy, which begs the question of whether the White House believes the absence of accountable governance in China in any way inhibits a close partnership with the U.S. Obama, however, did win Beijing’s acquiescence in a human rights dialogue set to start next year.

In sum, Beijing displayed a hard-boiled realism about hewing to an economic nationalism that has catapulted China from the Third World to the first tier of nations in just 30 years, but at a growing cost to global growth and financial stability. It also gained recognition as a key stakeholder in the world’s steering committee of great powers, without having to sacrifice anything of importance to the common cause of stemming the spread of nuclear weapons or slowing climate change.

What the U.S. got was the atmospherics of a cordial and cooperative Sino-American relationship, and little else.

President Obama is right, of course, that a U.S.-China collision is neither inevitable nor desirable. He may also be right that that none of the world’s toughest challenges can be met without Sino-American cooperation.

It is time, however, for frank acknowledgement of the limits of cooperation. We need to be clear about where U.S. and Chinese interests diverge, and about what, above all else, American really wants from China. Once the administration can answer that question, it will be able to pursue U.S. strategic interests with as much focus and determination as Beijing brings to the bargaining table.

Why the U.S. Needs to Ratify a Free Trade Agreement with Colombia

Posted on by The Progressive Policy Institute

A little over one year since his election, President Obama has been tepid at best on the issue of trade. The tariffs on Chinese tires, while not the administration’s finest hour, have not ignited the trade war its detractors feared. But in an era of economic uncertainty, the U.S. needs to reassert its global leadership on free trade. Ratifying a Free Trade Agreement (FTA) with Colombia would be a good first step.

In 2009, it’s not immediately obvious how to establish trade leadership. The Doha global free trade talks are dead in the water. While there are doubts about the benefits of bilateral trade deals (such as those expressed by Columbia University’s Jagdish Bhagwati), they are a more attainable goal. In his fiscal year 2010 proposal, President Obama said he would be consulting with Congress to try and ratify one or more FTAs, including the one negotiated with Colombia in 2006. Ratifying the Colombia FTA would not just be good economics – it would be good foreign policy.

On October 30, our ambassador signed a deal on the use of Colombian bases in Bogotá. The U.S. had long-standing counter-narcotics flights that were based out of Manta Air Base in Ecuador under an agreement that Ecuadorian President Rafael Correa refused to renew when it expired in July. The agreement with Colombia allows U.S. forces access to seven Colombian military bases for a decade to continue these flights. A ratified FTA also would be a natural complement to the Colombia bases deal. It would show the Colombian people that the U.S. is interested in more than just the narcotics war, but in their economic development as well.

It would also have the added bonus of showing actors like Correa that even if we don’t always see eye-to-eye on every issue, there is benefit to working with the U.S., rather than trying to score political points with hackneyed complaints about Yankee imperialism.

A Colombian FTA would also be a no-brainer economically. We already have effective free trade with Colombia. The Andean Trade Preferences and Drug Enforcement Act (ATPDEA) exempts over 6000 goods from Colombia, Ecuador, Peru and Bolivia from tariff. The President has indicated he will extend ATPDEA for another year before it expires at the end of December. It’s a move that has broad bipartisan support — Sen. Dick Lugar (R-IN) has even recommended ATPDEA be extended to cover Paraguay and Uruguay. But instead of kicking the can down the road another year, and extending what in 1992 was supposed to be a stop-gap act before the launch of a Free Trade Area of the Americas to an 18th year, the Obama administration and Congress should take the opportunity to ratify our FTA with Colombia.

Objections to the Colombia FTA come down to concerns that it will hurt labor and the environment in Colombia or cause job losses here in the U.S. Concerns about labor and the environment have been addressed in a protocol to the treaty adopting the “New Trade Policy Template.” This bipartisan agreement — negotiated between Rep. Charlie Rangel (D-NY) and the Bush administration in 2007 — is made up of six parts covering progressive economic issues such as labor, environment, investment, government procurement, intellectual property, and port security. The job-loss issue is mitigated by the fact that Colombia is a tiny trade partner compared to the U.S., making up less than 1% of our total trade.

But while the costs of a free trade agreement are minimal, there are great benefits to be had. While the North American Free Trade Agreement (NAFTA) is most often looked at through the prism of U.S.-Mexican economic relations, NAFTA’s greatest benefit has been the democracy dividend Mexico has paid out. When NAFTA was signed in 1992, Mexico had been under one-party rule for 60 years — within a decade, it had transformed into a vibrant democracy. The institutionalization of the rule of law by NAFTA was instrumental in making this happen. NAFTA also provided reassurance during the Tequila crisis of 1995.

Likewise, an FTA can provide Colombia with structural support as it strengthens its democracy. President Álvaro Uribe has accomplished much in his two terms in facing down the FARC guerrillas and drug-traffickers (in many cases now one and the same), but the consolidation of democracy in Colombia is not complete. While he is pursuing a third term in extensive consultation with the public and legislature, a third term does raise questions about democratic structures and the viability of institutions — not individuals — in the country. An FTA with Colombia would help consolidate those institutions more than continuing ATPDEA would.

Finally, an FTA would take some of the capriciousness out of U.S. foreign policy. Trade sanctions under FTA sanctions are caused by economic foul play or failure of democratic systems. Their application would send a strong signal encouraging the rule of law and economic fair play. Under the annual renewal of the ATPDEA, the application of sanctions could signal nothing more than political gamesmanship holding up congressional business.